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This is a demo with source code (well commented) using AgrDX(DirectX 8.1) and VB. It demonstrates using per-pixel lighting and high-performance stencil volume shadows in 2d. And I have never seen anything like this, so I didnt think this was possible in VB... ;)

It has something to do with the light not fading out properly. It appears that alpha blending is not working correctly on your card.
You can try the raster based version (non-stencil)
http://cade.sytes.net/Tutorials/Tutorial5.zip